Russian production of construction machinery near to collapse
As indicated by the results of PMR’s latest report, entitled “Construction machinery market in Russia 2015. Development forecasts for 2016-2020Construction machinery Russia directory”, limited productivity and high running costs have stunted the competitiveness of Russian machinery, not only on the world markets but also at home. Most Russian construction machinery manufacturers have been unable to face competition from foreign brands.
According to PMR, during the past two decades Russian producers of building machinery have allocated insignificant amounts for research into, and development of, new kinds of equipment and improvements to the existing product range, mostly because of the limited financial potential. The cost advantage from lower energy prices has narrowed significantly in recent years, as Russia has been forced to reduce the gap in energy prices as a condition of joining the World Trade Organisation. Furthermore, with obsolete production facilities in most cases, Russian manufacturers have to increasingly use Western parts in their machinery to be able to increase competitiveness. All of these factors have inevitably led to rises in the prices of the final products, particularly in 2014 and 2015 when the plummeting rouble has made the import of components much more expensive.
Until 2012, when Russia joined the WTO, an insignificant amount of support from the government for domestic production of construction machinery had been provided, almost exclusively in the form of increases in import duty rates. Eventually, those rate increases had generated a limited effect on imports of such machines. Furthermore, since 2012 import duty rates have been reduced or maintained at existing levels but not increased further. As indicated by PMR, the latest major stimulus from the Government of the Russian Federation was provided in July 2014, when it approved Decree No. 656, which bans state and municipal administrations as well as legal entities which are 100% controlled by federal, regional, and/or municipal administrations to purchases construction machinery manufactured outside the Eurasian Economic Union. The ban also applies to foreign brands produced in Russia but with a level of manufacturing localisation of up to 50%. However, it is estimated that those companies and public administrations are responsible for fewer than 5% of public tenders initiated every year throughout the country. So far, this ban has provided a marginal support for production of construction machinery in Russia.
Imported machinery currently dominates the market. According to PMR, in many cases the price factor is no longer a competitive advantage for Russian models when these have to compete with their Chinese equivalents, even after the 40-50% depreciation of the rouble between early 2014 and mid-2015. With regard to Western brands, even used machinery tends to be more expensive but surpasses Russian equipment in terms of ergonomics, comfort, a wider product range and quality of service. For example production of excavators, which continues to be the most widely used category of construction equipment in Russia, has plummeted over the past two decades. In the early 1990s more than 15,000 excavators were assembled in Russia every year, whereas in 2012-2014 the figure came to less than 2,000 every year. In the same time, PMR estimates that more than 29,000 excavators were imported to Russia between 2012 and 2014.
Russian manufacturers have gradually being squeezed out of the market. Whereas ten years ago domestic producers accounted for more than half of the total excavator market, these companies now account for just 10-15%. The only positive figures in this landscape are TVEX and the relatively young producer Exmash, whose production has been steadily increasing.
Even international manufacturers do not use production units in Russia at full capacity. Caterpillar was the first foreign manufacturer which started to produce excavators in Russia. The company launched production in 2008, and was followed by Komatsu in 2010, and by Volvo and Hitachi in 2013. As indicated by PMR in the recently published report, although there were plans for the Russian plants of Caterpillar, Volvo and Hitachi to produce up to 2,000 excavators per year, none of the manufacturers assembled even 200 machines in Russia in 2014. Furthermore, between 2008 and 2014 Caterpillar assembled fewer than 200 excavators every year in Russia. With regard to Komatsu, although its plant in Russia has a total annual production capacity of around 3,000 excavators, it has not manufactured more than 565 excavators per year since its activation in 2010.
Russian excavators still lack functionality and reliability when compared with western brands. Increasing production costs, which have accelerated in the last few years, have rendered Russian excavators unable of competing easily even with Chinese brands, despite the fact that a 5% import duty rate is applicable to such machines. The most frequently quoted factors which limit the more dynamic use of Russian excavator plants by foreign manufacturers are:
•the cost factor, with most of the components being cheaper to import even after import duty has been applied
•the domestic capability factor, highlighting the severe scarcity of Russian manufacturers of excavator components able to provide the level of quality demanded by foreign vendors.
This press release is based on information contained in the latest PMR report entitled Construction machinery market in Russia 2015Construction machinery Russia directory.
Author of the report and the press release:
Vitalie Iambla
For more information about the report please contact:
PMR is a market intelligence company with expertise in over 25 countries of Central and Eastern Europe. We specialise in construction, retail, pharmaceuticals, healthcare, and ICT sectors. Each year, we publish over 150 ready sector reports and market intelligence services. We organise business conferences and trainings, as well as conduct tailored research and consulting projects.
Since 1995, we have been working for more than 500 global corporations and for many regional companies. Our competitive advantage is built on a unique combination of in-house industry data, analyses, forecasts and substantial training, research and consulting experience. Using this synergy, we convert market knowledge into actionable business recommendations. PMR assistance has been used by our clients to increase their market share, successfully enter new areas and optimise costs.
Russian Production of Construction Machinery Near to Collapse
Russian production of construction machinery near to collapse
As indicated by the results of PMR’s latest report, entitled “Construction machinery market in Russia 2015. Development forecasts for 2016-2020Construction machinery Russia directory”, limited productivity and high running costs have stunted the competitiveness of Russian machinery, not only on the world markets but also at home. Most Russian construction machinery manufacturers have been unable to face competition from foreign brands.
According to PMR, during the past two decades Russian producers of building machinery have allocated insignificant amounts for research into, and development of, new kinds of equipment and improvements to the existing product range, mostly because of the limited financial potential. The cost advantage from lower energy prices has narrowed significantly in recent years, as Russia has been forced to reduce the gap in energy prices as a condition of joining the World Trade Organisation. Furthermore, with obsolete production facilities in most cases, Russian manufacturers have to increasingly use Western parts in their machinery to be able to increase competitiveness. All of these factors have inevitably led to rises in the prices of the final products, particularly in 2014 and 2015 when the plummeting rouble has made the import of components much more expensive.
Until 2012, when Russia joined the WTO, an insignificant amount of support from the government for domestic production of construction machinery had been provided, almost exclusively in the form of increases in import duty rates. Eventually, those rate increases had generated a limited effect on imports of such machines. Furthermore, since 2012 import duty rates have been reduced or maintained at existing levels but not increased further. As indicated by PMR, the latest major stimulus from the Government of the Russian Federation was provided in July 2014, when it approved Decree No. 656, which bans state and municipal administrations as well as legal entities which are 100% controlled by federal, regional, and/or municipal administrations to purchases construction machinery manufactured outside the Eurasian Economic Union. The ban also applies to foreign brands produced in Russia but with a level of manufacturing localisation of up to 50%. However, it is estimated that those companies and public administrations are responsible for fewer than 5% of public tenders initiated every year throughout the country. So far, this ban has provided a marginal support for production of construction machinery in Russia.
Imported machinery currently dominates the market. According to PMR, in many cases the price factor is no longer a competitive advantage for Russian models when these have to compete with their Chinese equivalents, even after the 40-50% depreciation of the rouble between early 2014 and mid-2015. With regard to Western brands, even used machinery tends to be more expensive but surpasses Russian equipment in terms of ergonomics, comfort, a wider product range and quality of service. For example production of excavators, which continues to be the most widely used category of construction equipment in Russia, has plummeted over the past two decades. In the early 1990s more than 15,000 excavators were assembled in Russia every year, whereas in 2012-2014 the figure came to less than 2,000 every year. In the same time, PMR estimates that more than 29,000 excavators were imported to Russia between 2012 and 2014.
Russian manufacturers have gradually being squeezed out of the market. Whereas ten years ago domestic producers accounted for more than half of the total excavator market, these companies now account for just 10-15%. The only positive figures in this landscape are TVEX and the relatively young producer Exmash, whose production has been steadily increasing.
Even international manufacturers do not use production units in Russia at full capacity. Caterpillar was the first foreign manufacturer which started to produce excavators in Russia. The company launched production in 2008, and was followed by Komatsu in 2010, and by Volvo and Hitachi in 2013. As indicated by PMR in the recently published report, although there were plans for the Russian plants of Caterpillar, Volvo and Hitachi to produce up to 2,000 excavators per year, none of the manufacturers assembled even 200 machines in Russia in 2014. Furthermore, between 2008 and 2014 Caterpillar assembled fewer than 200 excavators every year in Russia. With regard to Komatsu, although its plant in Russia has a total annual production capacity of around 3,000 excavators, it has not manufactured more than 565 excavators per year since its activation in 2010.
Russian excavators still lack functionality and reliability when compared with western brands. Increasing production costs, which have accelerated in the last few years, have rendered Russian excavators unable of competing easily even with Chinese brands, despite the fact that a 5% import duty rate is applicable to such machines. The most frequently quoted factors which limit the more dynamic use of Russian excavator plants by foreign manufacturers are:
•the cost factor, with most of the components being cheaper to import even after import duty has been applied
•the domestic capability factor, highlighting the severe scarcity of Russian manufacturers of excavator components able to provide the level of quality demanded by foreign vendors.
This press release is based on information contained in the latest PMR report entitled Construction machinery market in Russia 2015Construction machinery Russia directory.
Author of the report and the press release:
Vitalie Iambla
For more information about the report please contact:
Marketing Department
tel.: +48 12 618 90 00
e-mail: marketing@pmrcorporate.com
About PMR
PMR is a market intelligence company with expertise in over 25 countries of Central and Eastern Europe. We specialise in construction, retail, pharmaceuticals, healthcare, and ICT sectors. Each year, we publish over 150 ready sector reports and market intelligence services. We organise business conferences and trainings, as well as conduct tailored research and consulting projects.
Since 1995, we have been working for more than 500 global corporations and for many regional companies. Our competitive advantage is built on a unique combination of in-house industry data, analyses, forecasts and substantial training, research and consulting experience. Using this synergy, we convert market knowledge into actionable business recommendations. PMR assistance has been used by our clients to increase their market share, successfully enter new areas and optimise costs.
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